Türkiye cuts rates by 250 points for second time in row
Türkiye’s central bank indicated it would continue easing in the months ahead, flagging a temporary rise in January inflation
24 January, 2025
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Türkiye’s central bank cut its key interest rate by 250 basis points to 45 per cent as expected on Thursday, carrying on an easing cycle it launched last month alongside a decline in annual inflation that is seen continuing through the year-end.
The bank indicated it would continue easing in the months ahead, flagging a temporary rise in January inflation driven mainly by services, even as core inflation remains relatively low with domestic demand at “disinflationary levels”.
In a Reuters poll, all 13 respondents forecast a cut to 45 per cent from 47.5 per cent in the one-week repo rate. They expect it to hit 30 per cent by year-end, according to the poll median.
Annual inflation dipped to 44.38 per cent last month in what the central bank believes is a sustained fall toward a 5 per cent target over a few more years. It topped 75 per cent in May last year.
Given the decline in inflation, “pretty much now everyone wants to own (local Turkish debt),” said Yerlan Syzdykov, global head of emerging markets and co-head of emerging markets fixed income at Amundi, Europe’s largest asset manager.
“We share that perception that disinflationary forces will create an opportunity for us to see both lower inflation and lower rates in Türkiye on the local side,” he told Reuters.
In December, the central bank cut rates for the first time after an 18-month tightening effort that reversed years of unorthodox economic policies and easy money championed by President Tayyip Erdogan, who has since supported the steps.
It had raised the rate by 4,150 basis points in total since mid-2023 and kept it at 50 per cent for eight months before beginning easing.
“While inflation expectations and pricing behaviour tend to improve, they continue to pose risks to the disinflation process,” the bank’s policy committee said after its decision.
In a slight change to its guidance, the bank said it will maintain a tight stance “until price stability is achieved via a sustained decline in inflation.”
Last month, it said it would be maintained until “a significant and sustained decline in the underlying trend of monthly inflation is observed and inflation expectations converge to the projected forecast range.”
A 30 per cent administered rise in the minimum wage for 2025 was lower than workers had requested, though it is expected to boost monthly inflation readings this month and next, economists say.
The central bank has eight monetary policy meetings set for this year, down from 12 last year.
